II,
FINANCIAL, NON-FINANCIAL INFORMATION
I
AND THE PERFORMANCE OF THE JORDIAN COMMERCIAL BANKS
MOHMMAD ANAD HUSSIN
College of Business
Universiti Utara Malaysia
(2~11)
Cr
FINANCIAL, NON-FINANCIAL INFORMATION
L
AND THE PERFORMANCE OF THE JORDIAN COMMERCIAL BANKS
A thesis submitted to the
Othman Yeop Abdullah Graduate School of Business
In partial fulfillment of the requirements for the degree of
Master of Science (Banking)
Universiti Utara Malaysia
BY
MOHMMAD ANAD HUSSIN
(801514)
PERMISSION TO USE
In presenting this dissertation in partial fulfillment for a post graduate degree from University
Utara Malaysia, I agree that the university's library may take it freely available for inspection. I
m h e r agree that permission for copying of this thesis is any manner, in whole or in a part, for
scholarly purposes may be granted by my supervisor or, in their absence, by the Dean. Othman
Yeop Abdullah Graduate School of Business College Of Business, It is understood that any
copying or publications or use of this thesis or parts thereof for financial gain shall not be
allowed without my written permission. It is also understood that due recognition shall be given
to me and to Universiti Utara Malaysia for any scholarly use which may be made of any material
from my thesis.
Request for permission to copy or to make use of materials in this thesis, in whole or in part,
should be addressed to:
Dean Othman Yeop Abdullah Graduate School of Business
College Of Business,
Universiti Utara Malaysia,
060 10,UUM Sintok,
Kedah Malaysia
TABLE OF CONTENTS
.......................................................................................................i
PERMISSION TO USE .....................................................................................
...
ACKNOWLEDGMENT.. ...............................................................................ill
TABLE OF CONTENTS.................................................................................iv
...
LIST OF FIGURES.......................................................................................viii
...
LIST OF TABLES.........................................................................................v111
...
LIST OF APPENDICES.. ...............................................................................mil
LIST OFABBREVIATION...............................................................................ix
ABSTRACT.. ...............................................................................................x
TITLE..
11
CHAPTER ONE: INTRODUCTION
....................................................................................1
1.2. PROBLEM STATEMENT..................................................................2
1.3. THE RESEARCH QUESTIONS...........................................................4
1.4. THE RESEARCH OBJECTIVES.........................................................5
1.5. SIGNIFICANCE OF THIS STUDY.. .....................................................5
1.6. SCOPE AND LIMITATIONS OF THE STUDY.. .....................................7
1.7. ORGANIZATION OF THE STUDY.. ...................................................7
1.1. OVERVIEW
CHAPTER TWO: COMMERCIAL BANKS IN JORDAN: AN OVERVIEW
..........................................................................9
2.2. BANKING SECTOR IN JORDAN.. .....................................................9
2.1. INTRODUCTION..
.............................................................................. 9
HISTORICAL VIEW.. .......................................................-12
2.2.1. GENERALVIEW
2.2.2.
CHAPTER THREE: LITERATURE REVIEW
..........................................................................15
3.2. PROFITABILITY INLUENCED BY FINANCIAL FACTORS....................16
3.2.1. BANK CAPITAL.. ...............................................................17
3.2.2. BANK SIZE.. ......................................................................23
3.2.3. LOANS..............................................................................26
3.3. PROFITABILITY INFLUENCED BY NON-FINANCIAL FACTORS.. .......30
3.1. INTRODUCTION..
3.3.1. DIFFERENT MARKETS AND COMMERCIAL BANKS:
..............................................................30
3.3.2. MARKET CAPITALIZATION.. ..............................................33
3.3.3. TRADING VOLUME.. ..........................................................35
3.4. PROFITABILITY MEASURES..........................................................37
3.5. PROFITABILITY STUDIES IN JORDAN .............................................40
3.6. THEORIES ADOPTED IN THE STUDY.................................................44
3.6.1. AGENCY THEORY.. ............................................................44
3.6.2. MARKET POWER THEORY................................................44
3.6.3. CREDIT RISK THEORY.. ....................................................45
GENERAL VIEW..
CHAPTER FOUR: HYPOTHESES DEVELOPMENT AND METHODOLOGY
4.1. INTRODUCTION.
.........................................................................-47
..............................................................47
4.2.1. PROFITABILITY AND FINANCIAL FACTORS (HI).................48
4.2.2 PROFITABILITY AND NON-FINANCIAL FACTORS (H2).........50
4.2.3 SUPERIORITY OF PROFITABILITY MEASURES (H3).............52
4.3. RESEARCH STRATEGY AND DESIGN .............................................54
4.4. MEASUREMENT OF VARIABLES...................................................54
4.4.1. INDEPENDENT VARIABLES (IVS).......................................55
4.4.2. DEPENDENT VARIABLES @Vs) .........................................-59
4.5. DATA COLLECTION.....................................................................60
60
4.5.1. SAMPLING ........................................................................
4.5.2. DATA COLLECTION PROCEDURE .......................................61
61
4.6. THEORETICAL FRAMEWORK .........................................................
4.7. MULTIPLE REGRESSION ANALYSIS...............................................62
4.7.1. RESEARCH MODELS .........................................................63
4.2. RESEARCH HYPOTHESES
CHAPTER FIVE: FINDINGS
..........................................................................-67
5.2 DESCRIPTIVE STATISTICS.................................................................67
5.3 MULTIPLE REGRESSION RESULTS .................................................68
5.1. INTRODUCTION
CHAPTER SIX: SUMMARY AND CONCLUSIONS
............................................................................73
6.2 SUMMARY...................................................................................-73
6.1 INTRODUCTION
.......................73
6.2.2. BANK SIZE AND PROFITABILITY (HI-2). ..............................74
6.2.3. BANK LOANS AND PROFITABILITY (HI-3) ...........................75
6.2.1. BANK CAPITAL AND PROFITABILITY (HI-1).
6.2.4. BANK MARKET CAPITALIZATION AND PROFITABILITY
...............................................................................75
6.2.5. BANK TRADING VOLUME AND PROFITABILITY (H2-2). ........75
(H2-1).
6.2.6. SUPERIORITY OF BANK PROFITABILITY MEASURES
.............................................................77
6.3. CONCLUSIONS.. ............................................................................78
6.4. LIMITATIONS OF THE STUDY........................................................79
6.6 SUGGESTIONS FOR FUTURE RESEARCH..........................................79
REFERENCES.. ...................................................................................81
APPENDICES.. ....................................................................................92
(ROA and ROE) (H3)
vii
LIST OF FIGURES
Fi mre
FIGURE 4.1
Page
THEORETICAL FRAMEWORK.. ................................................ .63
LIST OF TABLES
Title
Pa~e
TABLE 2.1
NATIONAL AND FOREIGN BANKS OPERATING nu JORDAN
TABLE 4.1
LINKS AMONG RESEARCH QUESTIONS, OBJECTIVES AND
..........1 1
HYPOTHESES. ........................................................................ -53
TABLE 4.2
VARIABLE MEASLTREMENTS ................................................... -56
TABLE 4.3
VARIABLE MEASUREMENTS IN PRIOR RESEARCH.. .................. ..57
TABLE 5.1
DESCRIPTIVE STATISTICS OF THE DEPENDENT AND INDEPENDENT
VARIABLES.. ...............................................................................
-68
TABLE 5.2
REGRESSION ANALYSIS RESULTS: THE RELATIONSHIP BETWEEN
ROA AND STUDY'S IVS ........................................................... .69
TABLE 5.3
REGRESSION ANALYSIS RESULTS: THE RELATIONSHIP BETWEEN
ROE AND STUDY'S IVS.. ......................................................... .70
LIST OF APPENDICES
Title
Page
APPENDIX 1 DISTRIBUTION PERCENTAGE OF ASSET BETWEEN COMMERCIAL
AND ISLAMIC BANKS.. ............................................................92
APPENDIX 2 JORDANIAN AND FOREIGN BANKS NUMBER IN JORDAN.. .......... ..93
APPENDIX 3 CREDIT FACILITIES DISTRIBUTION IN JORDAN.. .........................94
viii
ABSTRACT
Profitability of commercial banks has been widely examined as a performance measure in
developed countries but not in developing countries. This study measures the performance of
commercial banks in Jordan by using ROA and ROE as profitability indicators affected by a
group of financial factors (bank capital ratio, size and loans) and non-financial factors (market
capitalization and trading volume) for the period 2005-2009.
This study has shown that bank financial factors, which are capital and loans, have a negative
and significant influence on profitability indicator ROE but not on ROA, while bank size has no
significant impact on both bank profitability measures (ROA and ROE).
Bank non-financial factor, market capitalization, has a negative and significant influence on
ROA, while it has significant positive influence on ROE in Jordanian commercial banks for the
period 2005-2009. Trading volume has strong significant and positive influence on both ROA
and ROE. This suggests that trading volume can be considered as the determinant for the
commercial banks' profitability in Jordan for the period 2005-2009. The study also has
concluded that the ROE has the superiority to ROA as profitability measure in testing the
profitability of commercial banks in Jordan for the observed period.
'CI
*r
CHAPTER ONE
rr
I
INTRODUCTION
The contents of
the thesis is for
internal user
only
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